Britain is deep in 'a fiscal black hole'

Economist John Kay has written a piece in today's Financial Times that highlights the problems any future Chancellor will face as a result of the 'obfuscation' of the current government. You can read the article in full here.

Meanwhile over at the Spectator (Speccie to its friends) Fraser Nelson - who yesterday joined in a spat with Ed Balls after accusing him of lying - has commented on John Kay's thoughts:

In the FT, John Kay has written one of those columns that quietly sums up the calamitous cost of Brown/Balls fiscal model. He concludes that we'll have to raise some £70bn of taxes and then inflate our way out of debt—and this is a theme worth looking at in greater detail because I suspect it is what George Osborne will end up doing. "This year, Britain is likely to incur a fiscal deficit of more than 12 per cent of national income," Kay starts. "This figure is completely outside the normal experience of developed countries in peacetime. How did it happen and what are its implications?" How it happened is that Brown and Balls used their verbal tricks to conceal their reckless leveraging up of the British economy. "The British government, ostensibly committed to this principle [of running surplus in the good times], has obfuscated to abuse it so that Britain entered the recession with a large underlying deficit. The downturn turned a substantial gap in public finances into a chasm. This situation was aggravated by the speed and scale of the recession and the realisation that many of the earnings from financial services, which had previously boosted tax receipts, had been illusory. The contribution of financial services to public finances has been not only removed but reversed."

So we're in a mess - and we may have to vandalise the value of sterling to get out of it painlessly.

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It's difficult to see how much longer Gordon Brown and his chums can maintain their present line of 'Labour investment vs Tory cuts'. The extent of the financial hole Brown has created is being hightlighted by more commentators daily.